Sept. 22 (Bloomberg) -- Lehman Brothers Holdings Inc.'s bankruptcy filing may delay the sale of about $30 billion of commercial real estate assets at a time when property values are eroding, leaving less on the table for creditors.

Lehman has ``$30 billion worth of real estate, which probably isn't worth $30 billion,'' said Jeffrey Baker, executive managing director of real estate broker Savills LLC in New York. ``Going through a bankruptcy process, the assets are going to be liquidated, and they will be liquidated at market pricing.''

Lehman was scrambling until just before it sought bankruptcy protection on Sept. 15 to sell the real estate assets, ranging from a loan to California land developer SunCal Cos. to a golf course overlooking St. Tropez and the Coeur Defense office complex in Paris, which the New York-based firm bought for $3 billion last year, the second-biggest real estate purchase of 2007.

``There's value in there,'' said Stephen Coyle, a fund manager at New York-based Cohen & Steers, about Lehman's commercial real estate before the firm filed for bankruptcy protection. ``It's a question of at what price?'' Cohen & Steers manages about $29 billion in real estate investments.

Since Lehman started trying to unload its real estate and related assets at the beginning of this year, banks including Zurich-based UBS AG and Merrill Lynch & Co. in New York have sold holdings at steep discounts to raise capital.

Discount Sales

UBS, the biggest Swiss bank, sold subprime and Alt-A mortgages and other assets in May to a fund managed by BlackRock Inc. for $15 billion. Those assets had a face value of about $22 billion. Merrill, the third-largest U.S. securities firm, sold $30.6 billion of mortgage-linked bonds known as collateralized debt obligations to Lone Star Funds for $6.7 billion.

Lehman filed the biggest bankruptcy in U.S. history on Sept. 15 in bankruptcy court in Manhattan, listing debts of $613 billion and assets of $639 billion. On Sept. 19, Lehman told the court that some securities included in the total assets had lost about $20 billion in value because of market volatility.

As the firm tries to liquidate assets, demand for office space is declining. The U.S. office vacancy rate probably will approach 14 percent by the end of this year, up from 12.5 percent at the end of 2007, said Ross Moore, the Toronto-based research director of Colliers International, a global alliance of real estate brokerages.

``Real estate markets are going to weaken worldwide,'' Moore said. ``The problems the U.S. is having and the weakness in financial markets are being exported to the rest of the world.''

New York Headquarters

The only real estate asset sale Lehman has tentatively agreed to so far is of its New York headquarters, a 1 million square foot building on Seventh Avenue in Manhattan that is being sold with two data centers in suburban New Jersey. That's part of a deal to sell the firm's U.S. investment banking units to London-based Barclays Plc for $1.75 billion. Lehman's lawyers said in bankruptcy court on Sept. 19 that appraisals of its New Jersey data centers came in ``significantly'' lower than expected, although they didn't announce any revision to the overall sale price.

``Lehman is in a state of suspended animation,'' said Lewis Feldman, a Los Angeles-based partner with law firm Goodwin Procter who is working with SunCal of Irvine, California, a Lehman borrower hit by the state's housing slump. ``No properties are going to move around without court approval -- no dispositions, certainly.''

Messages left for Lehman spokespeople in New York asking about plans to dispose of the firm's real estate assets were not returned.

Paris

The Coeur Defense property in Paris is one of at least $15 billion of real estate assets in Europe that are for sale, according to the administrator of the insolvent U.S. investment bank in Europe.

``We are gathering all expressions of interest so that we can communicate with interested parties as soon as we are ready,'' said Barry Gilbertson, a partner specializing in real estate at PricewaterhouseCoopers LLP, the joint administrator of Lehman Brothers International, in an e-mailed statement.

Ultimately, the bankruptcy filing may result in higher prices for Lehman creditors if they can ride out the storm, real estate advisers said.

Hedge funds and other buyout firms have raised as much as $163 billion to buy distressed assets including real estate and real estate debt, according to data compiled by Hedge Fund Research Inc. in Chicago.

Fair Market Value

``There's so much money chasing these opportunities, in liquidation proceedings pursuant to the bankruptcy laws, it may be the case that the universe of buyers sets a fair market value higher than the discount price,'' Goodwin Proctor's Feldman said. ``It will bring people out to bid on these things, that's for sure.''

Lehman, once the biggest U.S. underwriter of mortgage-backed securities, got stuck with loans it would have otherwise bundled and sold as securities after two Bear Stearns Cos. hedge funds that invested in real estate debt instruments collapsed in July 2007. The ensuing freeze in the global credit markets also left many real estate investors to whom Lehman had loaned money scrambling to sell assets to get out from under debt burdens.

Broadway Partners, the New York-based real estate investment fund led by Chief Executive Officer Scott Lawlor, bought more than $8 billion of properties, including Boston's John Hancock Tower, between December 2006 and May 2007, with short-term money borrowed from Lehman and other banks. Broadway paid a fee to extend the repayment deadline for $1.5 billion of mezzanine loans earlier this year.

Riding the Boom

Lehman rode the real estate boom to its peak in the second quarter of 2007, financing property acquisitions and packaging those loans into securities that it then sold to institutions. Last year, it became more difficult to find buyers of such debt. Lehman completed the $21.7 billion acquisition with Tishman Speyer Properties of apartment REIT Archstone-Smith Trust in October, almost six months after the purchase was announced.

In a final effort to survive the credit crisis, Lehman announced plans to place $25 billion to $30 billion of commercial property investments in a new publicly traded company called Real Estate Investments Global, which would have been spun off to existing shareholders in the first quarter of 2009.

Lehman needed to inject $5 billion to $7.5 billion of equity capital to support REI Global, said Lehman Chief Financial Officer Ian Lowitt on Sept. 10. Banks' prospects of raising capital all but vanished after U.S. Treasury Secretary Henry Paulson seized mortgage buyers Fannie Mae and Freddie Mac on Sept. 7, wiping out shareholder equity in the companies.

Fortress

Lehman advised on and provided debt financing for New York- based Fortress Investment Group Inc.'s $2.3 billion acquisition of Intrawest Corp., operator of Canada's Whistler Blackcomb ski resort, in 2006. When Morgan Stanley in New York bought seven San Francisco office towers from Blackstone Group Inc., manager of the largest leveraged buyout firm, in April 2007 for $2.4 billion, Lehman provided debt financing of about 75 percent of the purchase price.

Lehman also joined with Los Angeles-based Thomas Properties Group Inc. in June 2007 for the $1.2 billion purchase of 10 office buildings in Austin, Texas, that New York-based Blackstone sold to reduce debt from its takeover of Equity Office Properties Trust.

The San Francisco buildings have probably lost 15 percent of their value from the time they were purchased in April 2007, said Dan Fasulo, managing director of Real Capital Analytics Inc., a New York-based real estate data firm. ``So few mega-deals this size have traded lately,'' Fasulo said.

Coeur Defense

The Coeur Defense complex in Paris is one of the larger properties in Lehman's portfolio. In March 2007, Lehman Brothers Real Estate Partners set a record for the Paris market when it paid 2.11 billion euros ($3 billion) for the buildings, buying alongside French investor Atemi.

The complex in the French capital's financial district of La Defense consists of two 180-meter (590-foot) towers and three other buildings. Tenants include Societe Generale SA, ING Groep NV, Microsoft Corp. and Axa Investment Managers. The building, designed by Jean-Paul Viguier and completed in 2001, has total floor space of 182,000 square meters (1.96 million square feet).

Since the purchase of Coeur Defense, the amount of money invested in offices in the Defense district has slumped by 60 percent because of the freeze in bank lending to real estate investors, according to broker CB Richard Ellis Inc.

Capitalization rates for La Defense offices, or rent as a proportion of the purchase price, have climbed as much as 2.25 percentage points to between 5.75 percent and 6.5 percent, CBRE estimates. That means buyers are willing to pay less to get the same rental income.

St. Tropez

In southern France, Lehman owns a golf course overlooking the upscale beach resort of St. Tropez that it bought in 2001 with Orco Property Group SA. The Gassin Golf Country Club was designed by Gary Player and is valued at about 100 million pounds ($183 million), according to the Daily Telegraph newspaper in London.

Lehman's U.K. assets, valued at about $4 billion, comprise mainly mortgage-backed securities and other debt linked to residential properties. The firm also has an equity stake in Devonshire House, an office building in London's West End district, which was bought for about 270 million pounds in 2007.

Steve Witkoff, principal of New York-based Witkoff Group Inc., the lead owner of the building, said he had hoped before Lehman's bankruptcy filing that it might sell its stake in the building. Instead, Lehman was looking for a swift sale of larger groups of assets.

``I thought, `here's an asset you could get cash for' but there was no one to talk to,'' Witkoff said in a Sept. 18 interview. ``They needed to make the whole trade and that's why there was never anyone to talk to on an individual basis. I wish there was somebody to talk to last week. We would have bought it.''

To contact the reporters on this story: Daniel Taub in Los Angeles at dtaub@bloomberg.net; Simon Packard in London at packard@bloomberg.net; Hui-yong Yu in Seattle at hyu@bloomberg.net.

Last Updated: September 22, 2008 00:02 EDT